Volume XVIII, No. 15 (No. 471)
Friday, January 13, 2017
A Biweekly Electronic Newsletter
Hurwitz & Fine, P.C.
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Fax: 716-855-0874
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© Hurwitz & Fine, P. C. 2017
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As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York State appellate courts. The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers.
In some jurisdictions, newsletters such as this may be considered Attorney Advertising.
If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.
You will find back issues of Coverage Pointers on the firm website listed above.
Dear Coverage Pointers Subscribers:
Do you have a situation? You’re not alone. Remember, we love situations. Those are our favorite calls. We’ll help you unravel whatever situation confronts you.
We wish Happy New Year to our many subscribers. This issue comes to you from Scottsdale, where I am completing the last days of a much-needed vacation. This is usually one of the quieter times of the year. This year, I am not so sure.
We officially welcome John Ewell to our coverage team. John was admitted to the Bar this week but has been working with us for some months as he awaited formal admission. We are delighted to have him with us.
In this issue, the first of the 2017 year, we already have our first “Thousands Flee” case. For our newest subscribers, we use that phrase in the headlines when we feel a decision is so wrong that it would cause reasonable lawyers and claims professionals to run and hide. This one involves an assault, a shooting, where the civil complaint alleged only assault. The Third Department found a duty to defend, even though none of the allegations and nothing from outside the pleading, suggested that this was anything but an intentional assault. That’s the Guzy case.
We were also troubled by the First Department’s decision in 76-01 37th Ave. Realty Corp. v. Dongbu Ins. Co. which found that an insurer was obligated to both defend and indemnify a purported additional insured based on the allegations in the complaint against it. Indemnity should be based on the facts found, not the allegations. The allegations govern the duty to defend and not the duty to indemnify. However, we did not know enough about the facts in this case to add the “Thousands Flee” distinction. We have seen some other courts say the same thing but frankly, we take issue with deciding indemnity based on allegations.
Coverage Lawyers Wanted:
Hurwitz & Fine is looking to add experienced coverage lawyers to its growing team in Buffalo, Albany and Metro New York. Interested? Send me a note ([email protected]) or call, confidentially (716-849-8942). What constitutes a coverage lawyer? If you’re asking, it may not be you!
Jen’s Gems:
Greetings! Today I write from warm and foggy Buffalo. When I got up this morning, my husband informed me that overnight it was warmer in Buffalo than Laguna Beach, California. It does seem as if global warming may really benefit Buffalo.
In terms of my column, this week I report on an interesting case out of the trial court in Tompkins County. For those not overly familiar with New York geography, Ithaca (where Cornell University is located) is in Tompkins County. The issue was an exclusion which removed coverage for “bodily injury or property damage arising out of structural alterations which involve changing the size of or moving buildings or other structures, new construction or demolition operations performed by or on behalf of the named insured.” In the underlying matter, an employee of the roofing company retained by the insured to remove and replace the roof was injured. The question considered by the trial court was whether the phrase “demolition operations” applied to any gutting/removal type work at the site or whether it meant, as argued by the insured, the complete razing or tearing down of a structure. In considering this question, the court found that the exclusion was not clear and that the carrier had failed to establish that its interpretation was the only reasonable one.
The decision is interesting because it illustrates the burden placed on a carrier when trying to enforce a policy exclusion. Under New York law, an exclusion from coverage must be specific and clear in order to be enforced, and an ambiguity in an exclusionary clause must be construed most strongly against the insurer. Thus, to meet its burden, the insurer must establish that its construction of the exclusionary clause is the only one that could fairly be placed upon it.
Well, hope everyone is having a pleasant new year. Until next week…
Jen
Jennifer A. Ehman
Hope They Aren’t Still Looking or She’d Be Missing for 100 Years:
The Kansas City Sun
Kansas City, Missouri
13 Jan 1917
CHILD RAN AWAY
Mary Ellen Ridley ran away from her home Tuesday morning, December 26. I think she went to the Mayor’s Christmas tree Tuesday afternoon and was last seen on 12th street, going east. She is 11 years old and looks like an Italian. She wore a red stocking cap, tan shoes and a short coat. If anyone knows her whereabouts please notify a relative at 1110 Michigan Ave.
Editor’s Note: Actually they did find her and she eventually married and settled down in KC. I wonder what an Italian might look like?
Tessa’s Tutelage:
Dear Readers:
In accordance with my New Year’s Resolution to be more organized, I tried to get ahead of schedule and drafted my letter to you all early. Unfortunately, I wrote my whole letter about the continuing search for the new Buffalo Bills head coach. As soon as I finished my letter I looked at my phone and realized a coach had just been selected. So, I am re-writing this letter to you under the gun. That being said, I am pretty excited for the new head coach. Welcome to Buffalo, Sean McDermott, show us what you can do. (Please refrain from getting a Bills tattoo until we make the playoffs)
In the world of no-fault the First Department has given us some pretty consistent and logical decisions. The first involves a defendant who failed to provide its Answer to a Complaint, and the second involves the standard for overturning an Arbitrator’s decision.
I hope your New Year’s Resolutions are treating you well,
My best,
Tessa
Tessa R. Scott
Unions Say Mandatory Insurance is Undemocratic – 100 Years Ago:
The Labor Advocate
Cincinnati, Ohio
13 Jan 1917
FORCED INSURANCE
IS NOT DEMOCRATIC
Washington.—“Social insurance by force is not democratic, even though it might be disguised as compulsory benevolence,” writes President Gompers in the current issue of the American Federationist.
“Compulsory social insurance cannot be administered,” he says, “without exercising some control over wage earners. This is the meat of the whole matter. Industrial freedom exists only when wage earners have complete control over their labor power. To delegate control over their labor power to an outside agency takes say from the economic power of those wage earners and creates another agency for power. Whoever has control of this new agency acquires some degree of control over the workers. There is nothing to guarantee control over that agency to the employed. It may also be controlled by employers. In other words, giving the government control over industrial relations creates a fulcrum which means great power for an unknown user.”
“Compulsory social insurance is in its essence undemocratic. The first step in establishing social insurance is to divide people into two groups—those eligible for benefits and those considered capable to care for themselves. The division is based upon wage earning capacity. This governmental regulation tends to fix the citizens of the country into classes, and a long-established insurance system would tend to make these classes rigid.”
Editor’s Note: How times have changed.
Phillips Federal Philosophies:
Hello, All:
I don’t know about you, but I always find myself reluctant to let go of the holiday season in January. Which is usually my excuse for the fact that I as of yet haven’t gotten around to taking down the lights and decorations. I have noticed, however, that my cat has made excellent progress in removing all the ornaments from the bottom third of the tree. I’ve therefore decided that if I wait long enough, he may just get everything put away. It’s a decision I might need to reconsider in February.
Speaking of reconsidering (see how far I’ll go for the flimsiest of segues?), the Eastern District was recently asked by an insurer to reconsider its prior finding of a duty to defend. In Scottsdale Insurance Co. v. United Indus. & Const. Corp., the court determined that the second time around wasn’t the charm.
As always, thanks for reading.
J.
Jennifer J. Phillips
You Wonder Why it Cost So Much to Go the Movies?
Democrat and Chronicle
Rochester, New York
13 Jan 1917
Senator Carson, of Rushville, to
Investigate Movies
Penn Yan, Jan. 12.—William A. Carson, of Rushville, Senator from the district comprising Ontario, Wayne and Yates counties, has received unusually good committee assignments for a new senator. He has been placed on the committees of Education, Insurance, Labor and Industry, Agriculture and Affairs of Villages.
He also has been appointed a member of the special committee to investigate the moving picture business with the idea of finding out what amount of revenue for the state can be obtained by taxing the movies.
This committee will bring much additional labor to Senator Carson.
Hewitt’s Highlights:
Dear Subscribers:
Since last edition, we have entered a new year! In my house, we had an early New Year’s countdown at 10 pm, at which time the boys were sent to bed. In spite of the early celebration, we had a good time with noisemakers, appetizers, and to my wife’s chagrin, confetti poppers. I hope you too enjoyed the new year. A new year is exciting! A time to shed the old year and anything not accomplished. A New Year brings reflections on the past year as well as new goals, opportunities, and possibilities. And of course, a new year brings new serious injury threshold cases. Those never stop.
We have a number of cases for you this edition, suggesting the First and Second Departments spent their New Year’s evening writing decisions. Or not. In one case, a defendant’s motion for summary judgment was denied because the defendant’s expert recited plaintiff’s range of motion results without letting the court know what is normal and comparing them. That is sloppy. In another, the plaintiff’s injury degeneration history allowed the motion to be granted, where plaintiff’s expert provided no objective medical basis for determining that those conditions were in any way caused by the accident. In a third case, the court found that it was reasonable to find the accident caused the injuries given plaintiff’s youth and lack of symptoms before the accident, coupled with the sudden onset of symptoms after the accident. In another case, gaps in the treatment were adequately explained by plaintiff because his old insurance company stopped paying for treatment and his new insurance company refused to pay.
Until next time,
Rob
Robert Hewitt
Situation Wanted:
Argus-Leader
Sioux Falls, South Dakota
13 Jan 1917
PERSONAL
AN ELDERLY RESPECTABLE Scandinavian-American gentleman with means wishes to correspond with a respectable Christian lady of means, object matrimony. Address letter, 333 care Argus-Leader.
Editor’s Note: Why not a woman of means? It cost the same to marry someone of means as someone without. Just sayin’.
Barnas on Bad Faith:
Hello again:
This edition of Barnas on Bad Faith is brought to you from Terminal 5 at JFK, as I am returning from a deposition in Midtown East. One thing I don’t understand about JFK Terminal 5: why are the moving walkways on the skywalk always broken? Previously, the walkways would just sit idle, which was annoying but not too bad. However, for the last month or so, at least, a gigantic wall has been constructed that completely encloses the walkways for the length of the skywalk. Not only does this mean one cannot use the walkways, something I always enjoy doing at the airport, but it means that the walking area on the skywalk has been cut down to less than 1/3 of the total area. This is especially dangerous when someone with one of those big luggage carts, which now take up almost the entire available walking area, is strolling along not watching where they are going. In the past two days I have had near misses with two of those things. Someone please fix this.
Now that I’m done ranting, I want to congratulate all of the new lawyers who were admitted in the Appellate Division, Fourth Department this Wednesday, January 11, 2017, including our own John Ewell. I hope you all enjoyed the day as much as I did and took some time to reflect on your accomplishments, those who helped you get there, and what you have ahead. Welcome to the profession.
On a completely different note, I was disappointed to see the news today that the San Diego Chargers are moving to Los Angeles. It’s never fun to see a team relocate. Most Bills fans understand the anxiety of the potential relocation of your favorite team all too well. It’s a shame that after more than 50 years the Chargers are leaving San Diego for a city that already has a football team. This is especially true when you read some of the columns from Los Angeles area newspapers stating that many residents don’t even want the Chargers to move there. Hopefully the NFL can find a way to return to San Diego someday.
I have two cases in my column. Bauman is a bad faith case arising out of a SUM claim. The insurer valued the plaintiff’s claim at zero even though she was eventually awarded approximately $180,000.00 during arbitration. The insurer also never responded to her settlement offer. Accordingly, the Western District of Washington concluded that the issue of the insurer’s bad faith should go to a jury.
In National Manufacturing, the District of New Jersey concluded that the insurer did not engage in bad faith. Two events were at issue: (1) the insurer misquoted limiting language from the policy that was not applicable to the cited exclusions; and (2) an adjuster had stated that there was likely coverage for the claim during an email sent before the investigation was completed. The court concluded that these events, together or individually, did not constitute bad faith. It reasoned that, while the insurer admittedly misquoted the policy language, it did not pursue the cited limitations. Second, while the adjuster did indicate there may be coverage for the insured under one provision of the policy, he also cited other exclusions that would preclude coverage in his email, which was drafted before the investigation was complete. As such, it could not support a finding of bad faith.
See you next time.
Signing off,
Brian
Brian D. Barnas
Situations Wanted – a Century Ago:
The Tacoma Times
Tacoma, Washington
13 Jan 1917
GENTLEMAN, 27, would like to make acquaintance of working girl. Object matrimony. James Snowden, Genl. Delivery, Tacoma, Wash.
Editor’s Note: We could not find a marriage certificate for Mr. Snowden in ancestry.com so he may still be looking.
Peiper’s Panache:
Over the years, we try to catch any sports related cases involving appellate review. Indeed, I think it was an assumption of risk case on a golf course that may have provided the inspiration for the Potpourri section of Peiper on Property. In proving that we are not infallible, it appears we missed the most interesting story of Pink v. Rome Hockey Association. In it, the Court addresses the duties of landowners and/or lessees of property to protect against foreseeable dangers and/or criminal behavior. Yes, you guessed it; it involves a fight among parents at a youth hockey game. It’s an interesting read, and a noteworthy decision.
The Pink decision is of particular importance to me. The New Year always brings with it new challenges, and yours truly is no exception to that rule. I started 2017 the same way I ended 2016, in my backyard, building an ice rink for my hockey crazed 7 year old. He guaranteed he’d help with the project, and he did…for all of 35 minutes. Several hours in to the project, the water did not run out between the boards, and several days later it froze to a glass-like sheen. Time “on ice” has surpassed, in one weekend, the time it took to erect the fixture so the very least my labors are not going unused.
At least I’ll know what my responsibilities are for any upcoming shinny games that get out of control.
Finally, we welcome John Ewell, officially, to the practice of law. He was admitted to the NY State Bar yesterday afternoon. He is an excellent addition to our team, and we look forward to you working with him in the future.
Steve
Steven E. Peiper
Altman’s Administrative (and Legislative) Agenda
Greetings and Happy New(ish) Year! How are your New Years’ resolutions going, dear reader? Me, I resolved to eat more dessert and exercise less. I figured I may as well make a resolution I could keep.
Today, I bring you New York’s new guidelines regulating the sales of annuities. Exciting stuff!
Howard
Howard B. Altman
Different Level of Damages:
New York Herald
New York, New York
13 Jan 1917
$10,000 FOR BOY’S LOST LEG.
Father Also Awarded $1,000 for
Loss of Son’s Services.
For the loss of his right leg Francis Kelly, Jr., 14 years old, of 158th Street and Park Avenue, The Bronx, got a $10,000 verdict yesterday from a jury in the Bronx Supreme Court sitting before Justice Mitchell. The boy’s father got $1,000 for the loss of his services.
The boy was roller skating in front of his home on October 20, 2014, when an auto truck owned by James Butler, Inc., against which corporation the suits were, ran over him.
Editor’s Note: $10,000 in 1917 had the same buying power as $203,900.86 today.
Wilewicz’s Wide-World of Coverage:
Dear Readers,
We hope that all is well and that everyone has recovered from the holidays and gotten back into the swing of things. My holidays were exhausting and draining, but fun-filled and eventful. Christmas was lovely and white, while I frankly cannot recall New Year’s Eve but presume it was a blast. Now back to the grind then shine.
This week, we have a decision that’s closer to home for once. Out of our own Second Circuit, we bring you Certified Multi-Media v. Preferred Contractors. There, the court analyzed whether a policy limit cap applied when its very terms seemed to differentiate the Named Insured versus an insured. The difference meant either having a cool $1 million in coverage, or a mere $10,000. Ultimately, since the language of the provision did appear to use the terms in different ways, different limits applied. Further, since the greater limit applied to the Named Insured under certain circumstances (such as arose here), they were entitled to the greater pool of money. Interesting stuff, as always, and worth a quick read.
Be sure to tune in next time for more Circuit Court decisions from around the country!
Until then,
Agnes
Agnes A. Wilewicz
Gambling was Costly in 1917, If Caught:
The Evening World
New York, New York
13 Jan 1917
FRIENDLY POKER GAMBLING
IF HOSTESS GET “KITTY’
Magistrate So Decides When He
Holds Bronx Woman for Trial
in $1,000 Bail
The question of whether a friendly game of poker among women still continues to be a friendly game when the hostess take a “cut” of 5 cents on every pot was put up to Magistrate Simms in the West Farms Court this morning. He answered it by holding the hostess, Mrs. Esther Jacobs of No. 540 Claremont Parkway, the Bronx, in $1,000 bail for trial on a charge of maintaining a gambling house.
“There was nothing friendly about it, Your Honor,” Mrs. Dora Cornelia of No. 229 East Eleventh Street said. “I lost ten dollars in the game. My mother was always playing there, and I was sent with my sister to stop her, but they asked us to join the game, and we did. Everybody who won a pot had to give Mrs. Jacobs 5 per cent.”
“Not 5 per cent.—only 5 cents,” Mrs. Jacobs interrupted. “And that was only taken to buy refreshments.”
“Such refreshments?” cried Mrs. Beatrice Kaplan of No. 1462 Anthony Avenue. “Why, it was only a piece of stale bread we were given. And I lost four dollars and my sister lost ten.”
Editor’s Note: The $1000 bail is about $20,390 in 2017 dollars for a penny ante game.
Highlights in This Week’s Issue, Attached:
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
-
Court Imagines Facts to Determine Duty to Defend. Thousands Flee.
-
How Do We Count the Days?
-
Exclusion for “Structural Alterations” in Additional Insured Endorsement Does Not Apply to Structural “Defects” Where Repairs had Not Yet Been Made
-
First Department Continues to Stretch Additional Insured Provisions; Obligation to Defend AND Indemnify Based on Allegations in Underlying Action
-
Reading Entire Trade Contract Compels Finding that Additional Insured Coverage Required
-
Statutory Damages Under Fair Credit Reporting Act are Compensatory and Insurable and Not an Excluded “Penalty”
-
Insurance Companies Investigation Prior to Lawsuit May be Privileged but the Privilege Must be Established by Evidentiary Proof.
-
What is the Standard for Determining the Applicability of an Additional Insured Endorsement?
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
-
Defendant’s Expert Must Compare Its Finding of Plaintiff’s Range of Motion to What Is Normal
-
Defendants Failed to Address the 90/180-Day Category
-
A Plaintiff Raising Triable Issue of Fact Will Result in Denial of Motion
-
Plaintiff’s Expert Provided No Objective Medical Evidence that Plaintiff’s Chronic Injuries Were Exasperated by the Accident
-
Plaintiff Adequately Explained Gaps in Treatment When her Former Insurance Company Stopped Coverage and Her New Insurance Would Not Pay for It
-
Plaintiff’s Experts Were Able to Get Around Plaintiff’s History of Dislocations by Showing that the Plaintiff Suffered an Additional Dislocation in the Accident and Further Damaged Other Areas Which Caused Significant Range of Motion Limitations Unaddressed by Defendant’s Expert
-
Plaintiff’s Expert Raised an Issue of Fact Although He Acknowledged Plaintiff’s Knee Had Arthritis by Pointing to Specific Medical Signs of Trauma Which Caused the Meniscus Tear
TESSA’S TUTELAGE
Tessa R. Scott
Litigation
-
A Compulsory Arbitration Award Will Not be Overturned Unless it Does Not Comport with CPLR 7511 and Is Arbitrary and Capricious
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
-
Notice of Premium Lapse Irrelevant Where Policy Also is allowed to Lapse
-
Plaintiff who Sells Damaged Building to Tortfeasor Forfeits Insurance Coverage Due to Compromised Subrogation Rights
.
Potpourri
-
Question over whether Ownership of Truck was “Owned” by Employer or Predecessor Corporation Precludes Defendant’s Section 11 Motion
-
High Court Punches Out Plaintiff’s Duty Argument for a Punch Up at a Hockey Game
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
-
Second Circuit Holds that Lower Policy Limit in “Action Over” Provision Did Not Apply, as per Policy Terms (New York law)
JEN’S GEMS
Jennifer A. Ehman
-
Demolition Exclusion Found to Be Ambiguous
-
Court Finds, Among Other Things, that § 3420 does not apply to a Risk Retention Groups Domicile Out of State
BARNAS ON BAD FAITH
Brian D. Barnas
-
Insurer’s Failure to Respond to Insured’s Settlement Offer presented Issue of Fact precluding Summary Judgment on Bad Faith Claim
-
Adjuster Email and Inclusion of Improper Coverage Limitation in Disclaimer were Insufficient for a Finding of Bad Faith
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
-
Do-over Don’t
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
-
Annuity Sales Regulations
EARL’S PEARLS
Earl K. Cantwell
[email protected]
-
Don’t Forget About Standing to Sue
Peace be with you and our nation in these interesting times.
Dan
Dan D. Kohane
Hurwitz & Fine, P.C.
1300 Liberty Building
Buffalo, NY 14202
Office: 716.849.8942
Mobile: 716.445.2258
Fax: 716.855.0874
E-Mail: [email protected]
Website: www.hurwitzfine.com
Twitter: @kohane
LinkedIn: www.linkedin.com/in/kohane
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
NEWSLETTER EDITOR
Dan D. Kohane
[email protected]
ASSOCIATE EDITOR
Agnes A. Wilewicz
ASSISTANT EDITOR
Jennifer A. Ehman
INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]
Steven E. Peiper, Co-Chair
Michael F. Perley
Jennifer A. Ehman
Patricia A. Fay
Agnieszka A. Wilewicz
Jennifer J. Phillips
Brian D. Barnas
Howard B. Altman
John R. Ewell
Diane F. Bosse
Joel R. Appelbaum
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]
Michael F. Perley
Robert E. Hewitt, III
Jennifer J. Phillips
Brian D. Barnas
NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]
Patricia A. Fay
APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]
Jennifer J. Phillips
Diane F. Bosse
Topical Index
Hewitt’s Highlights on Serious Injury
Tessa’s Tutelage
Peiper on Property and Potpourri
Wilewicz’s Wide World of Coverage
Barnas on Bad Faith
Phillips’ Federal Philosophies
Altman’s Administrative (and Legislative) Agenda
Earl’s Pearls
KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]
01/12/17 Guzy v. New York Central Mutual
Appellate Division, Third Department
Court Imagines Facts to Determine Duty to Defend. Thousands Flee.
Yet another shooting case, where coverage is sought.
In February 2015, Prindle sued Guzy for personal injuries and Guzy tendered the defense of the lawsuit to NY Central. The insurer had issued Guzy homeowners and umbrella insurance policies. NY Central disclaimed and this action ensued.
Under the terms of the homeowners insurance policy, New York Central was obligated to provide its insured with a defense in a legal action involving bodily injury caused by an occurrence, which was defined as an accident. The umbrella policy also contained an exclusion that barred coverage for "expected or intended" conduct. Defendant contends that plaintiff's act of shooting Prindle was intentional, thereby bringing it outside the ambit of the homeowners insurance policy or within the umbrella policy's exclusion. We disagree.
Here, Prindle's complaint alleged that Gozy "assault[ed] [Prindle] . . . by shooting [Prindle] in the abdomen" and that "as a result of the assault," Prindle sustained personal injuries. While Prindle's complaint also alleged that plaintiff was arrested and criminally charged with assault, there was no further specification as to this criminal charge raised against plaintiff. Inasmuch as an assault may derive from an individual's recklessness or criminal negligence a reasonable possibility exists that plaintiff's actions were not.
Furthermore, while the allegation in Prindle's complaint describing plaintiff's actions as "intentional and criminal" is relevant in determining whether defendant's duty to defend exists, such conclusory allegation drafted by a third party is not the focal. Because the shooting can be reasonably interpreted as having stemmed from plaintiff's unintentional conduct, the court concluded that defendant's duty to defend was triggered under the insurance policy.
Editor’s note: Wrong. Just wrong. The underlying complaint did not allege negligence, it only alleged intentional assault. We understand the case law that calls for an carrier to defend if the allegations, however groundless, false or fraudulent, alleges something that can be covered. We understand that in another shooting case Automobile Insurance Co. et al v. Cook, a defense was required by the Court of Appeals when there were allegations of unintentional results.
We understand the Fitzpatrick case that suggests that a carrier can look at the true facts – even if not alleged – to broaden the duty to defend.
Those cases are not this case..
If this becomes the norm, the complaint becomes a meaningless document because if a court uses its imagination in EVERY case, it can imagine facts that may give rise to a duty to defend.
01/11/17 Matter of Global Liberty Insurance v. Cedillo
Appellate Division, Second Department
How Do We Count the Days?
This was an application to permanently stay an uninsured motorists (“UM”) arbitration.
Global Liberty made the application to stay after Decillo, its insured, sought to recover UM benefits. The accident occurred on November 24, 2008 and it involved an vehicle owned by Sidibe. At a framed-issue hearing, the evidence showed that the respondent National Continental Insurance Co. (“National”) had issued a policy to Sidibe effective October 23, 2008, through October 23, 2009, but that on November 5, 2008, at "6:00," it mailed to Sidibe a notice of cancellation for nonpayment of the premium, which advised that the subject policy would be cancelled effective November 20, 2008, at 12:01 a.m.
The Supreme Court found that the cancellation of the policy was valid based upon the 15-day notice and, therefore, denied the petition and dismissed the proceeding.
Under the terms of the subject policy, and pursuant to Vehicle and Traffic Law § 313(1)(a), National was required to give a minimum of 15 days' notice for cancellation of coverage for nonpayment. "[I]n the absence of an express agreement to do so, the law does not recognize fractions of a day". Thus, the 15 days specified in the Vehicle and Traffic Law " means 15 times 24 hours'" Here, because National failed to give the full 15 days' notice, its notice of cancellation was invalid. The contentions raised in National's brief are without merit.
Editor’s note: I don’t think the Court was right on this one. The General Construction Law tells us how to count days:
§ 20. Day, computation. A number of days specified as a period from a certain day within which or after or before which an act is authorized or required to be done means such number of calendar days exclusive of the calendar day from which the reckoning is made. If such period is a period of two days, Saturday, Sunday or a public holiday must be excluded from the reckoning if it is an intervening day between the day from which the reckoning is made and the last day of the period. In computing any specified period of time from a specified event, the day on which the event happens is deemed the day from which the reckoning is made. The day from which any specified period of time is reckoned shall be excluded in making the reckoning.
01/10/17 Donato Realty, LLC v. Utica First Insurance Company
Appellate Division, First Department
Exclusion for “Structural Alterations” in Additional Insured Endorsement Does Not Apply to Structural “Defects” Where Repairs had Not Yet Been Made
The lease agreement between the landord’s managing agent and the tenant required the tenant to maintain insurance for itself and the landlord against "any liability arising out of the ownership, use, occupancy or maintenance of the demised premises and all areas appurtenant thereto," which includes the sidewalk.
Utica argues that the landlord was not covered for the underlying personal injury action as the additional insured endorsement excludes coverage for "any structural alteration" made on the landlord’s behalf. However, the evidence indicates an unrepaired structural defect, rather than a structural alteration. Moreover, the underlying complaint does not allege that the trip and fall was the result of repairs that had been made on landlord’s behalf.
01/05/17 76-01 37th Ave. Realty Corp. v. Dongbu Ins. Co.
Appellate Division, First Department
First Department Continues to Stretch Additional Insured Provisions; Obligation to Defend AND Indemnify Based on Allegations in Underlying Action
Since there is no dispute that all the allegations in the underlying action fall within the scope of the insurance policy issued by defendant, defendant is obligated to indemnify plaintiff 76-01 37TH Ave. Realty Corp. for any liability it is found to bear in that action, and the declaration need not await the final judgment therein.
Editor’s Note: We continue to disagree with holdings broadly requiring indemnity based on allegations. Allegations should govern defense and not indemnity. Allegations require defense, even if groundless, false or fraudulent. Indemnity should be based on determined facts, not based on allegations.
01/03/17 Nova Casualty v. Harleysville Worchester Insurance Company,
Appellate Division First Department
Reading Entire Trade Contract Compels Finding that Additional Insured Coverage Required
Dart Mechanical sought a defense under a Harleysville policy. Harleysville’s named insured was Coastal Sheet Metal Corp. and the trade contract between Cdid not require Coastal to obtain insurance naming Dart as an additional insured. Harleysville based this argument on the fact that paragraph 20.1(C) of the subcontract leaves the coverage limits blank. It contends that the entire provision was rendered inoperative and therefore that Coastal was required only to obtain coverage in accordance with the requirements imposed on Dart in the prime contract with the City, which did not contain language requiring Dart to be added as an additional insured. The court rejected the argument finding that other contract provisions made it clear that AI coverage was required.
Harleysville's interpretation would render meaningless the phrase "whichever limits are greater" in the introductory section of paragraph 20.1 requiring Coastal to procure either insurance for Dart that was comparable to the insurance Dart was required to procure under the prime contract or the insurance set forth thereinafter; it would also render meaningless the final sentence in subparagraph C, "DART MUST BE INCLUDED AS AN ADDITIONAL INSURED ON A PRIMARY BASIS."
Reading contextually, it is evident that since the prime contract's limits of $5 million per occurrence and $5 million in the aggregate were greater than the $1 million per occurrence and $2 million in the aggregate set forth in paragraph 20.9.1 of the subcontract, Coastal was required to obtain coverage with $5 million liability limits, naming Dart as an additional insured on its insurance policy.
The complaint in the underlying action alleges that the injured plaintiff was working at the construction site "when an unsecured and/or inadequately secured duct fell causing [him] to be injured." Although the complaint alleges that the defendants, which included Coastal, were negligent, negligence is not required to trigger coverage for Dart as an additional insured. Harleysville is obligated to provide a defense and indemnity for Dart, even if Coastal is ultimately found to have no liability in the underlying action.
Editor’s Note: Last sentence of summary is consistent with previous First Department rulings.
12/29/16 Navigators Ins. Co. v. Sterling Infosystems, Inc.
Appellate Division, First Department
Statutory Damages Under Fair Credit Reporting Act are Compensatory and Insurable and Not an Excluded “Penalty”
Under an Errors and Omissions policy, the carrier was obligated to pay all damages arising in connection with defendants' performance of their professional services. The policy defines damages as "any compensatory sum," including a settlement, and excludes coverage for, inter alia, penalties.
Insureds, with the permission of the insurer, entered into a settlement with the plaintiffs in the putative class action which alleged that defendants' business practices violated provisions of the Fair Credit Reporting Act (FCRA), causing the class members injury, including, in certain instances, termination from employment.
Are statutory damages a penalty or compensatory damages?
To make out a claim under the FCRA, the complaint must allege, inter alia, injury in fact, a "concrete and particularized" and "actual or imminent" "invasion of a legally protected interest," i.e., the statutory right to the fair handling of the plaintiff consumer's credit information. The remedy for "willful" failure to comply with a requirement of the statute is "any actual damages sustained by the consumer by the failure or damages of not less than $100 and not more than $1,000," and "such amount of punitive damages as the court may allow," as well as costs and reasonable attorneys'
Since the consumer must elect the option of either actual or statutory damages, and may also recover punitive damages, it is reasonable to infer, as the motion court did, that the actual and the statutory damages serve the same purpose. Moreover, the statute provides separately for a civil penalty. Plaintiff argues that the limitation of damages to a "willful" violation of the statute evinces a legislative intent to penalize intentional misconduct, rather than compensate for actual damages sustained, but this is not so, since willfulness as a statutory condition of civil liability "cover[s] not only knowing violations of a standard, but reckless ones as well. Thus, it is clear that Congress intended the statutory damages provided for by the FCRA to be compensatory and not a penalty.
12/29/16 Hewitt v. Palmer Veterinary Clinic
Appellate Division, Third Department
Insurance Companies Investigation Prior to Lawsuit May be Privileged but the Privilege Must be Established by Evidentiary Proof.
On April 16, 2014, Hewitt took her cat to be examined at a facility operated by defendant Palmer. She was allegedly attacked and injured by a dog, owned by Hemingway. On April 25, 2014, counsel for plaintiff wrote to the clinic to notify it that he had been retained and urge it to notify its liability insurance carrier of plaintiff's "claim" as soon as possible. It did. There were some discussions between the plaintiff’s counsel and the carrier but the suit was commenced in August 2014.
Plaintiff demanded that the clinic produce certain items in the course of discovery, including documents from the file of the insurance adjuster in the clinic's possession, custody or control that were prepared before service of the complaint. The clinic refused to turn over those items upon the ground that they were "prepared directly in anticipation of litigation," and plaintiff moved to compel a response.
Inasmuch as "[t]he purpose of liability insurance is the defense and settlement of claims [*2]. . . once an accident has arisen," documents contained in the insurance adjuster's file are generally protected by "a conditional immunity . . . as material prepared for litigation. Accident reports that are prepared with "a mixed purpose and result at least in part from the internal operations of the defendant's business" are not, however, exempt from disclosure. It is therefore incumbent upon "the party resisting disclosure to[, in the first instance,] show that the materials sought were prepared solely for litigation and this burden cannot be satisfied with wholly conclusory allegations"
The clinic here neither disclosed what documents were encompassed by the discovery demand nor identified the specific documents that it claimed were prepared solely for litigation purposes. The clinic also made inadequate efforts to show that these unidentified documents were conditionally immune from disclosure, submitting the conclusory affidavits of two individuals who baldly asserted that the undisclosed portions of the carrier's file beyond the April 25, 2014 communication from plaintiff's counsel had been created for litigation purposes.
However, compelling the disclosure of all demanded documents at this point is inappropriate. It is unclear what documents are encompassed by the discovery demand, many of which may well have been solely prepared for litigation purposes since they were created after the carrier became aware of plaintiff's claim and began communicating with her counsel. Moreover, the parties were in agreement that Supreme Court should review the documents in camera if any question existed as to the applicability of conditional immunity. The most prudent course under these circumstances is to remit so that Supreme Court may review the documents in camera to determine whether they were exclusively prepared for litigation purposes and, if so, whether they should nevertheless be disclosed.
Editor’s Note: The defense was fortunate that there was an agreement with plaintiff’s counsel for an in camera review. Insurers and defense counsel are reminded of the importance of establishing the privilege with an affidavit of someone with knowledge of the nature of the documents and the privilege, someone other than defense counsel!
12/29/16 The City of New York v. Wausau Underwriters Ins. Co.
Appellate Division, First Department
What is the Standard for Determining the Applicability of an Additional Insured Endorsement?
Does Wausau have an obligation to defend the City, listed as an additional insured (“AI”) under a policy issued by Wausau to one of the City's contractors, Hellman with respect to five underlying personal injury actions?
The City has entered into four trade contracts with defendant Hellman which are relevant to this appeal. There were four street electrical contracts with the city, the first was for Bronx street lighting, the second was for Bronx traffic signals, the third was for Manhattan traffic signals, and the fourth involved Queens decorative lighting. Under the terms of each of these four contracts, Hellman was required to obtain a commercial general liability (CGL) insurance policy naming the City as an additional insured.
Wausau issued two policies to Hellman, each which listed the City as an AI. Each held that:
"The coverage afforded to the additional insured is limited to liability caused, in whole or in part, by the negligent acts or omissions of you [Hellman], your employees, your agents, or your subcontractors, in the performance of your ongoing operations.
"This insurance does not apply to bodily injury' . . . arising out of your [Hellman's] work' included in the products-completed operations hazard' unless you are required to provide such coverage for the additional insured by the written agreement, and then only for the period of time required by the written agreement . . . ." (Emphasis added)
Both policies further provide, in identical language, that a products-completed operations hazard:
"[i]ncludes all bodily injury' . . . occurring away from premises you [Hellman] own or rent and arising out of . . . your [Hellman's] work' except . . . [w]ork that has not yet been completed or abandoned" and that " your [Hellman's] work' will be deemed completed . . . [w]hen all the work to be done at the job site has been completed[.]"
In this case, in order to determine whether Wausau had a duty to defend the City as an additional insured in any or all of five underlying actions, the court is to examine the allegations in each of the five underlying complaints, construing them liberally, for the suggestion of a reasonable possibility of coverage under the policy for the claims asserted. In addition, it must examine the record with respect to each case to determine whether Wausau had actual knowledge of facts establishing such a reasonable possibility.
The applicable standard holds that the duty to defend arises when at least one of two alternate criteria are met. "A duty to defend exists whenever the allegations in the complaint in the underlying action, construed liberally, suggest a reasonable possibility of coverage, or where the insurer has actual knowledge of facts establishing such a reasonable possibility" (DMP Contr. Corp. v Essex Ins. Co., 76 AD3d 844, 845 [1st Dept 2010]
In the first underlying action, the complaint alleges that she stepped off a curb and into a deep depression and her injuries were attributable, in part, to defective street lighting at that intersection. There was no mention of Hillman so the allegations itself do not give rise to a defense obligation. However, the record reveals that the City Law Department advised Hellman that a street pole was inoperative and not repaired until after the accident, so a defense obligation exists.
In the second action, again, there was an allegation about a defective street pole which, by itself, was not enough to trigger AI coverage. But Wausau was advised about the defective pole a day before the accident so had enough information to implicate a defense obligation.
The third action alleged that plaintiff's injury was attributable in part to a defective traffic control device at the intersection. Both the City and Hellman are named as defendants. Thus, the facial allegations of the complaint, construed liberally,
In the fourth action, again, both the City and Hellman were named as defendants in a claim alleging that the plaintiff was injured when a traffic control box fell and struck her. Thus, there was a defense obligation.
In the fifth claim the complaint he was injured when he tripped on uneven, broken pavement at a crosswalk at the intersection of Jamaica Avenue and Sutphin Boulevard in Queens County. Both the City and Hellman are named in the complaint. However, Hellman’s work had been completed and there was no products/completed operations coverage required. Accordingly, the policy did not require a defense.
HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW
Robert E.B. Hewitt III
01/11/17 Paul v. Weatherwax
Appellate Division, Second Department
Defendant’s Expert Must Compare Its Finding of Plaintiff’s Range of Motion to What Is Normal
Defendants moved for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants failed to make a prima facie showing that the plaintiff did not sustain a serious injury. In support of their motion, the defendants relied upon, inter alia, the affirmed medical report of Kenneth Austin, the defendants' examining orthopedist. Based upon his examination of the plaintiff on August 5, 2014, Dr. Austin set forth the range-of-motion findings with respect to the cervical and lumbar regions of the plaintiff's spine, but failed to compare those findings to what is normal. Therefore, the motion was denied.
01/11/17 Goehringer v. Turrisi
Appellate Division, Second Department
Defendants Failed to Address the 90/180-Day Category
In support of their motion for summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident, the defendants failed to establish their prima facie entitlement to judgment as a matter of law. The papers submitted by the defendants failed to adequately address the plaintiff's claim, set forth in the bill of particulars, that she sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). Since the defendants failed to meet their prima facie burden, it was unnecessary to determine whether the papers submitted by the plaintiff in opposition were sufficient to raise a triable issue of fact.
01/11/17 Burk v. I Om Atif Hacking Corp.
Appellate Division, Second Department
A Plaintiff Raising Triable Issue of Fact Will Result in Denial of Motion
The defendants met their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The defendants submitted competent medical evidence establishing, prima facie, that the alleged injury to the cervical region of the plaintiff's spine did not constitute a serious injury under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). In opposition, however, the plaintiff raised a triable issue of fact as to whether he sustained a serious injury to the cervical region of his spine. No facts were given.
01/10/17 Westerband v. Buitraso
Appellate Division, First Department
Plaintiff’s Expert Provided No Objective Medical Evidence that Plaintiff’s Chronic Injuries Were Exasperated by the Accident
Defendants established prima facie that plaintiff did not sustain a serious injury by submitting the affirmed report of a radiologist who reviewed a CT scan of plaintiff's lumbar spine taken after the accident and concluded that it revealed preexisting and degenerative conditions not causally related to the accident. Defendants also relied on plaintiff's testimony admitting his long-term history of degenerative lumbar spine conditions for which he had previously had surgery, and submitted the report of an orthopedic surgeon who, after examining plaintiff and reviewing his extensive medical records, opined that plaintiff's lumbar conditions were degenerative and unrelated to the accident. Contrary to the motion court's reasoning, the radiologist was not required to personally examine plaintiff in order to render an opinion concerning the CT scans and defendants were able to meet their prima facie burden by showing a lack of causal connection between the injuries and the accident without addressing the issue of limitations in use of the lumbar spine.
In opposition, plaintiff failed to raise an issue of fact. He submitted the operative reports prepared by the surgeons who performed disc replacement surgery after the accident, which identified his diagnosis as chronic degenerative disc disease. His neurologist's conclusory opinion that his preexisting lumbar conditions were aggravated by the subject motor vehicle accident is insufficient to raise an issue of fact, since the neurologist failed to rule out the preexisting conditions demonstrated in plaintiff's own medical records as the cause of the lumbar conditions, and provided no objective medical basis for determining that those conditions were in any way caused by the accident.
01/05/17 Fathi v. Sodhi
Appellate Division, First Department
Plaintiff’s Young Age and Lack of Symptoms before the Accident Gave Credence to Plaintiff’s Physician’s Report that the Accident Caused the Injuries
Defendants made a prima facie showing that plaintiff did not suffer a permanent consequential or significant limitation of use of his cervical or lumbar spine as a result of the subject motor vehicle accident. Their neurologist found no objective evidence of impairment in plaintiff's cervical or lumbar. Their radiologist found cervical disc bulges and lumbar disc herniations, but opined that these conditions were degenerative in nature and not causally related to the accident.
In opposition, plaintiff raised an issue of fact as to his cervical spine injury by submitting an affirmation by his treating physician, who found limitations in range of motion and opined that the cervical disc conditions were caused by the accident. Given plaintiff's relatively young age and the sudden onset of symptoms after being hit by defendants' vehicle, his physician's opinion provided a different, yet altogether equally plausible, cause. Contrary to defendants' argument, plaintiff submitted sufficient evidence that he received treatment for his cervical spine injury contemporaneous with the accident to permit a finding of a causal connection
However, plaintiff failed to raise an issue of fact as to his lumbar spine claim. The MRI report contained in his own medical records reflected findings of degenerative disc disease in the lumber spine, and his medical expert failed to address those findings and explain why they were not the cause of the injuries complained of.
Defendants demonstrated prima facie that plaintiff did not sustain an injury within the 90/180-day category through plaintiff's bill of particulars and his testimony, which established that he was confined to bed and home for, at most, two weeks, as well as their expert's opinion that the claimed physical injuries were causally unrelated to the accident. In opposition, plaintiff presented no evidence of a medically determined injury that prevented him from performing his customary daily activities within the relevant time period.
The Court noted that because plaintiff failed to raise an issue whether his lumbar spine condition was caused by the accident, he cannot recover for such injury but can recover for any other injury causally related to the accident if he prevails on his cervical spine claim.
01/05/17 Gomez v. Davis
Appellate Division, First Department
Plaintiff Adequately Explained Gaps in Treatment When her Former Insurance Company Stopped Coverage and Her New Insurance Would Not Pay for It
Defendant established prima facie that plaintiff did not sustain a serious injury involving limitation of use of the cervical spine or lumbar spine. Defendant submitted, inter alia, the affirmed report of an orthopedist finding full range of motion, normal test results, and resolved strains in both parts of the spine
Plaintiff's opposition raised triable issues of fact. The affirmed report of her radiologist provided objective medical evidence of the existence of a disc herniation in the cervical spine and disc bulges in the lumbar spine. Plaintiff's neurologist found significant limitations in range of motion, spasms, and positive clinical test results found upon recent examination, and, based on such findings and his review of plaintiff's medical records, opined that the symptoms were permanent and causally related to the accident. Plaintiff adequately explained her gaps in treatment when she testified that her insurance company stopped coverage, and that her new insurance company would not cover further treatment. While defendant contends that plaintiff did not provide admissible evidence of post-accident treatment, he did not make any prima facie showing of a lack of causal connection between the claimed injuries and the accident, and his expert listed the records of plaintiff's post-accident treatment. Under the circumstances, plaintiff's testimony concerning her post-accident treatment was sufficiently supported by the uncertified medical records, which may be considered for that limited purpose since they are not the only admissible evidence submitted in opposition.
01/05/17 Shapiro v. Spain Taxi, Inc.
Appellate Division, First Department
Plaintiff’s Experts Were Able to Get Around Plaintiff’s History of Dislocations by Showing that the Plaintiff Suffered an Additional Dislocation in the Accident and Further Damaged Other Areas Which Caused Significant Range of Motion Limitations Unaddressed by Defendant’s Expert
Defendants established prima facie that plaintiff Shapiro did not sustain a serious injury to his left shoulder by submitting the affirmed report of an orthopedist who found normal range of motion, negative test results, and a resolved acute and chronic dislocation. Defendants also submitted portions of Shapiro's medical records showing that he had a history of shoulder dislocations, the last occurring 10 years before the accident, and their expert opined that his shoulder surgery was related to this history, not to the accident.
In opposition, plaintiffs submitted an affirmed expert report, as well as an unaffirmed MRI report and unaffirmed reports of. Shapiro's orthopedic surgeon, which plaintiffs were entitled to rely on because defendants' expert specifically referenced and relied on them in reaching his opinion These records, together with the affirmed report, demonstrated that Shapiro sustained a re-dislocation of his shoulder, as well as a separation of the acromioclavicular (AC) joint with complete rupture of the coracoclavicular ligaments. Plaintiffs' expert provided evidence of continuing, significant limitations in range of motion, and opined that the injuries were causally related to the accident. He adequately addressed Shapiro's acknowledged history of shoulder dislocation, and opined that the accident had caused the re-dislocation of the shoulder, as well as the additional AC joint separation and ruptured ligaments, which required surgical repair. Thus, plaintiffs raised an issue of fact as to causation. As plaintiffs note, defendants' expert described the dislocation as acute and did not address the medical evidence that Mr. Shapiro also suffered a separated AC joint and ruptured ligaments following the subject accident.
Appellate Division, First Department
Plaintiff’s Expert Raised an Issue of Fact Although He Acknowledged Plaintiff’s Knee Had Arthritis by Pointing to Specific Medical Signs of Trauma Which Caused the Meniscus Tear
Defendants made a prima facie showing that plaintiff did not sustain a serious injury to her left knee by submitting the report of an orthopedist, who found no objective evidence of disability and full range of motion. In opposition, plaintiff raised a triable issue of fact as to her left knee injury by submitting the report of her treating orthopedic surgeon, who found persisting limitations in range of motion, and opined, based on his review of the MRI films and observations during surgery, that plaintiff's injuries were caused by the accident. The surgeon acknowledged the presence of arthritis in plaintiff's left knee, but pointed to specific medical evidence of trauma to support his opinion that the torn menisci were caused by the accident.
Although defendants' expert did not examine plaintiff until more than two years after the accident, defendants established that plaintiff did not suffer a 90/180-day claim by relying on her admission in her verified bill of particulars that she was confined to home and bed for just one week after the accident. In opposition, plaintiff failed to provide medical evidence sufficient to raise an issue of fact as to this claim.
Tessa R. Scott
Litigation
12/29/16 Matter of DTG Operations, Inc. v Travelers Indem. Co.
Appellate Division, First Department
A Compulsory Arbitration Award Will Not be Overturned Unless it Does Not Comport with CPLR 7511 and Is Arbitrary and Capricious
Petitioner's insured was involved in a motor vehicle accident with another vehicle driven Respondent’s insured. Respondent paid personal injury protection (PIP/no-fault) benefits to its insured, and then sought "loss transfer" reimbursement from petitioner pursuant to Insurance Law § 5105, under the mandatory arbitration procedure. Notably, where, as here, the matter involves compulsory arbitration, the award must be upheld so long as it comports with CPLR 7511 and is not arbitrary and capricious.
The First Department held that there was no basis for vacating the award under CPLR 7511(b). An evidentiary basis exists in the record to support a finding that respondent had demonstrated a causal relationship between the accident and the medical treatments for which it paid. Respondent "responded in writing to the causation argument" stating that the applicant passenger, who was injured while riding in an Access-A-Ride vehicle insured by respondent, was disabled prior to this loss, that the loss worsened any prior condition, that it takes a disabled person much longer to recover from said injuries, and that a disabled person therefore requires more treatment. If petitioner still had reservations regarding the amount paid, it could have requested further proof.
01/03/17 American Tr. Ins. Co. v Baucage & Innovative Medical
Appellate Division, First Department
Plaintiff Never Accepted Defendant/Appellant’s Untimely Answer
The First Department affirmed the holding of the Supreme Court which granted plaintiff's motion for a default judgment. The record demonstrated that plaintiff submitted proof that it served Innovative Medical with the summons and complaint, which Innovative Medical does not deny, and Innovative Medical failed to set forth a reasonable excuse as to why it failed to timely answer the complaint. Innovative Medical's claim that plaintiff accepted its untimely answer by failing to reject it fails, because plaintiff moved for the default judgment within 13 days of its receipt.
Thus, Innovative Medical's cross motion was properly denied. Since Innovative Medical never properly filed an answer, it may not ask the court to reach the merits of the action because CPLR 3212(a) expressly provides that a motion for summary judgment may only be made after joinder of issue.
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
01/11/17 Weiss v Sec. Mut. Ins. Co.
Appellate Division, Second Department
Notice of Premium Lapse Irrelevant Where Policy Also is allowed to Lapse
Security Mutual issued a whole life policy to Aaron Silberstein which covered the life of Agi Weiss. Mr. Silverstein, apparently, assigned his interest in the policy to Benjamin Weiss in June of 2001. In October of 2008, Security Mutual notified Mr. Weiss that his premium payment was due on November 5, 2008. When no payment was made, Security Mutual then notified Mr. Weiss that he had a thirty day grace period to ensure that premiums where kept current. When that failed, Security Mutual advised via letter dated January 13, 2009 that it had terminated coverage. However, the carrier agreed to provide an “extended term” through June 25, 2009.
On June 10, 2011, plaintiff contested Security Mutual’s notice of premium lapse from two and half years earlier. Essentially, plaintiff argued that the notice did not comply with Insurance Law § 3211, and therefore should be void.
Security Mutual moved for summary judgment arguing that the action was time barred pursuant to Section 3211(d)’s two year statute of limitations. While the Court disagreed that the statute of limitations was applicable, the Court noted that the policy “lapsed” on its own after the premiums went unpaid for a year. Because the plaintiff sat on his rights for more than year, his claim was waived.
01/03/17 915 2nd Pub, Inc v QBE Ins. Corp.
Appellate Division, First Department
Plaintiff who Sells Damaged Building to Tortfeasor Forfeits Insurance Coverage Due to Compromised Subrogation Rights
Plaintiff’s building was damaged by construction at a neighboring premises. Fortunately for plaintiff, and apparently while its insurance claim was pending, it sold the premises to the adjacent tortfeasor. Upon learning that the building was sold, QBE denied coverage on the basis that plaintiff compromised QBE’s potential subrogation rights. Moreover, as the building was razed, the policy’s condition that plaintiff cooperate with any investigation was also breached.
On summary judgment, the Appellate Division agreed with both of QBE’s arguments and dismissed plaintiff’s action accordingly.
Potpourri
12/29/16 Pringle v AC Bodyworks & Sons, LLC.
Appellate Division, Third Department
Question over whether Ownership of Truck was “Owned” by Employer or Predecessor Corporation Precludes Defendant’s Section 11 Motion
Plaintiff’s decedent was tragically struck by a vehicle in the course of his employment. A claim for death benefits under workers’ compensation law was made, and payment was secured under a policy maintained by decedent’s employer AC Bodyworks & Sons, Inc. (“AC, Inc.”)
Plaintiff commenced the instant wrongful death action against AC Bodyworks & Sons, LLC (“AC, LLC”). AC, LLC was the predecessor of AC, Inc. It is alleged that while AC, Inc. was the employer of plaintiff, the truck was still licensed and registered in AC, LLC’s name. Accordingly, there is no bar to plaintiff’s action against AC, LLC.
On hearing summary judgment, the Court noted that questions of fact existed about the corporate structure of AC, Inc. and AC, LLC. Where, as here, questions related to whether AC, LLC was an alter ego of AC, Inc. at the time of accident remain unanswered, it follows that summary judgment was premature.
10/25/16 Pink v Rome Youth Hockey Ass’n.
Court of Appeals
High Court Punches Out Plaintiff’s Duty Argument for a Punch Up at a Hockey Game
The incident arises out of a travel hockey game between Rome and Whitestown that was played in a rink owned by the City of Rome. Apparently, after an extremely “chippy” (hockey term for those uninitiated) which saw multiple players and the Whitestown coach ejected, a melee broke out in the stands. Included in this was a fist fight between two women. When Mr. Pink (no, you cannot make this stuff up) attempted to intervene, he was struck by one of the female combatant’s brothers. Mr. Pink sustained significant facial trauma as a result of being struck.
Pink brought this action seeking to recover damages against the Rome and Whitestown Hockey Associations, respectively, the City of Rome, the assailant, as well as other involved “participants.” As relevant to the appeal, defendant Rome Hockey moved for summary judgment arguing that it had no duty to protect plaintiff from assault. Plaintiff, on the other hand, posited that the USA Hockey policy required Rome Hockey to, in effect, police the games and stands and eject any unruly spectators.
In a split appellate decision, the Fourth Department found issues of fact and denied Rome Hockey’s application. Interestingly, as Whitestown was the visiting team, the Appellate Division found no duty running to it. In reversing, the Court of Appeals acknowledged the settled principle of law that a landowner/leaseholder has a duty to control the conduct of third parties. This duty includes the obligation to “minimize foreseeable dangers…including foreseeable criminal behavior.”
While “foreseeability” determines the scope of the duty, the Court instructed that the duty is driven by “past experience and the likelihood of conduct on the part of the third persons…which is likely to endanger the safety of the visitor.” Here, because Rome Hockey took measures to protect spectators, and because there had been no similar conduct at the arena in the past, the Court found that no duty had been triggered. In so holding, the Court also refused to endorse a finding that Rome Hockey was de facto negligent because they may not have fully complied with USA Hockey’s code of conduct. The Court noted that where an internal policy exceeds the standard of ordinary care, it cannot provide a basis for liability.
WILEWICZ’S WIDE WORLD OF COVERAGE
Agnes A. Wilewicz
01/03/17 Certified Multi-Media Solutions v. Preferred Contractors Ins.
United States Court of Appeals, Second Circuit
Second Circuit Holds that Lower Policy Limit in “Action Over” Provision Did Not Apply, as per Policy Terms (New York law)
In 2008, Getronics USA hired Certified Multi-Media Solutions to provide electrical services in a shopping mall in the Bronx. Getronics was insured under a policy issued by Travelers and Certified had a policy issued to it by Preferred Contractors Insurance. When an employee of Certified was injured while performing the electrical work, both liability and coverage litigation ensued.
One issue in the coverage litigation, which eventually made its way here to the Second Circuit, was whether Preferred’s policy was limited by its terms. Those terms included an “Action Over” provision which read:
Notwithstanding the limit of coverage shown in the Declarations and/or Section III ..., $10,000 only is the most we will pay as damages for any and all claims, including any claim for contractual indemnification, arising from or related to any “bodily injury”, “property damage” or “personal injury” sustained by an employee of an insured while injured, harmed or damaged in the scope of such employment.
In any action brought by such employee, if you are impleaded into such action, or if any third party action over is commenced against you, irrespective of the claims or theories set forth therein, the $10,000 limit of coverage as provided in this endorsement shall apply when:
-
The injury sustained by the employee is a “grave injury” as defined by Section 11 of the New York State Workers; Compensation Law, as follows: [list of qualifying injuries]; and
- < > are required by contract, regulation or law to be insured under a workers’ compensation policy providing liability coverage for claims arising from injuries to employees.JEN’S GEMS
Jennifer A. Ehman
01/04/17 Herbert v. Dryden Mut. Ins.
Supreme Court, Tompkins County
Hon. Phillip R. Rumsey
Demolition Exclusion Found to Be Ambiguous
Defendant issued a policy of liability insurance to plaintiffs. In October 2008, plaintiffs purchased a three-story, six-unit building in Ithaca. When purchased, the property was vacant and in a state of disrepair. Plaintiffs, acting as their own general contractor, commenced substantial repairs and renovations. In the fall of 2009, plaintiffs hired a company to tear off and dispose of the existing roof on the entire building and install a new roof. During the work, an employee of the roofing company was struck by a sheet of plywood that fell during the installation of the new roof.
Defendant disclaimed coverage based on an exclusion for loss arising out of “bodily injury or property damage arising out of structural alterations which involve changing the size of or moving buildings or other structures, new construction or demolition operations performed by or on behalf of the named insured.”
Defendant conceded that renovations conducted at the property including replacement of the roof did not consist of structural alterations changing the size of, or moving, the building, and they did not constitute new construction. Thus, the question was whether coverage was precluded on the basis that replacement of the roof involved “demolition activities.” Relying on the First Department decision in Corcoran v. Dairyland Ins. Co., 170 AD2d 243 (1991), the court held that the plain meaning of “demolition” is the “complete tearing down, razing or destruction of [an] entire building.” In the court’s view, this decision was also consistent with the dictionary definition of demolition. Thus, the court found that defendant failed to meet the high burden of establishing that its definition of “demolition operations” (i.e., any destruction type work) was the only reasonable interpretation of the exclusion. It reiterated that the undisputed evidence established that the work removing the roof did not impact the building’s structure. Accordingly, summary judgment was awarded to plaintiffs.
12/20/16 Southwest Mar. & Gen. Ins. Co. v Preferred Contrs. Ins. Co.
Supreme Court, New York County
Hon. Robert R. Reed
Court Finds, Among Other Things, that § 3420 does not apply to a Risk Retention Groups Domicile Out of State
This matter arises out of a personal injury action wherein the injured plaintiff fell from a scaffold while working for Gilmar Design Corp. at premises located at 28-38 Varick Street in Brooklyn, New York. ExxonMobil was the owner of the premises where the accident allegedly occurred. Nonparty I'll Go, Inc. was hired by ExxonMobil to act as the general contractor at the site. Roux and SoilSolution were hired as subcontractors by I'll Go, Inc. to perform work and services at the site. SoilSolution allegedly subcontracted with Gilmar to perform certain masonry work
Following the accident, the injured plaintiff sued ExxonMobil, Roux and SoilSolution. Third-party actions were brought against Gilmar. Gilmar failed to appear and a default was eventually entered against it.
At the time of the accident, Gilmar was insured under a commercial general liability policy issued by Preferred Contractors Insurance Company (PCIC), a risk retention group. ExxonMobil, Roux and SoilSolution eventually brought this action claiming entitlement to coverage under the PCIC policy as additional insureds.
Two years after first filing this lawsuit, plaintiffs filed an amended complaint adding new claims. Specifically, the new fourth cause of action entitled “Breach of Contract — Contractual Liability,” purported to sue PCIC directly to recover compensatory and consequential damages due to the insurer’s refusal to provide Gilmar with contractual liability coverage in accordance with the PCIC policy and the Gilmar subcontract. The new fifth cause of action was entitled “NY Insurance Law § 3420.” ExxonMobil, Roux and SoilSolution alleged that they were entitled to recover as against PCIC under the default judgments they obtained against Gilmar in the underlying action. Plaintiffs’ sixth cause of action, entitled “Waiver and Estoppel,” replead the original fourth cause of action, but now alleged that, not only did ExxonMobil, Roux and SoilSolution timely and effectively tender to PCIC their claim for defense and indemnity as additional insureds under the PCIC policy, but that Gilmar also timely and effectively tendered its claim for contractual liability coverage in favor of ExxonMobil, Roux and SoilSolution under the PCIC policy. And, as a result of PCIC's alleged unreasonable delay in accepting and/or responding to these tenders, plaintiffs' new sixth cause of action contended, PCIC waived and/or is estopped from asserting any coverage defenses that may have otherwise applied and plaintiffs are entitled to a judgment requiring PCIC to provide primary insurance coverage to, and in favor of, ExxonMobil, Roux and SoilSolution for the claims in the underlying action.
The court found no basis for dismissal of the fourth cause of action since plaintiffs’ status as an additional insured was still open and the claim was sufficiently pled. Not sure I agree. Based on the history provided by the court, it seems as if the fourth claim would need to be asserted by Gilmar.
The fifth cause of action, however, was based on Insurance Law § 3420. In considering this cause of action, the court agreed with PCIC that in order bring a direct action under subsection (a)(2), plaintiffs needed an unsatisfied money judgment against PCIC’s insured. Here, while they obtained a judgment of default on liability, there was no money judgment. Moreover, the court agreed that this section of the insurance law is inapplicable to risk retention groups chartered in another state. As PCIC was a non-domiciliary risk retention group, the statute does not apply to it.
Lastly, the court likewise dismissed the sixth cause of action which alleged that PCIC waived and/or was estopped from asserting any coverage defense as PCIC’s coverage position as clearly set forth on multiple occasions.
Brian D. Barnas
01/04/17 Bauman v. American Commerce Insurance Company
United States District Court, Western District of Washington
Insurer’s Failure to Respond to Insured’s Settlement Offer presented Issue of Fact precluding Summary Judgment on Bad Faith Claim
American Commerce issued a policy that provided underinsured motorist (“UM”) coverage to Plaintiff LouAnn Bauman for up to $250,000 per insured. On April 4, 2006, Ms. Bauman was injured in an auto accident, for which she received full medical PIP benefits of $10,000 and full wage loss benefits of $10,000 from Defendant.
In August, 2011, the tortfeasor's insurer settled with Ms. Bauman for the $50,000 limit of his policy. Shortly thereafter, Plaintiffs sent Defendant a letter requesting that American Commerce (1) buy out their claim against the tortfeasor's $50,000 policy and (2) make them an offer under their UIM coverage. Defendant declined to buy out the underlying tort claim and requested more information about Plaintiff's damages.
In May, 2013, Plaintiffs sent Defendant a settlement demand letter, outlining over $1 million in damages and requesting the full $250,000 of the UIM policy. Defendant accepted coverage and requested an independent medical examination (“IME”). Plaintiffs responded by invoking the arbitration clause under the policy. underwent the IME, and Plaintiffs still received no response to their settlement demand.
In February, 2015, a two-day arbitration hearing was held before a three-person panel. Ms. Bauman received an award of $180,290 which resulted, after offsets, in a net award of $118,946.07. Plaintiffs filed this lawsuit, asserting that Defendant acted in bad faith, and violated IFCA and the Washington Consumer Protection Act (“CPA”). It is undisputed that at no time following receipt of Plaintiffs' settlement demand did Defendant extend a settlement offer to its insureds.
In support of its motion for summary judgment on its bad faith claim, Defendant offered Plaintiffs’ deposition testimony that if Defendant had offered them no money they would not have accepted. Defendant also had an expert testify that it was reasonable to value the case at zero and make no offer. Thus, Defendant argued that Plaintiffs could not establish bad faith because they would rejected Defendant’s non-offer anyways and proceeded to arbitration as they did.
The court rejected Defendant’s argument. The issue of whether Defendant’s failure to respond to Plaintiffs’ settlement proposal was reasonable was a question to be decided by a jury.
12/30/16 National Manufacturing Co., Inc. v. Citizens Ins. Co. of America
United States District Court, District of New Jersey
Adjuster Email and Inclusion of Improper Coverage Limitation in Disclaimer were Insufficient for a Finding of Bad Faith
Plaintiff National is a company engaged in the business of producing precision deep drawn and shallow drawn metal components, including stainless steel battery casings used in pacemakers in the medical field. This suit arose out of pitting to the metal cases. In or about April 2011, National; customers began reporting that there were microscopic pits on the surface of the pacemaker battery cases, which resulted in the customers rejecting the cases as unusable.
After National's customers started rejecting its parts in spring of 2011, National began investigating the cause of the chemical pitting. The investigation confirmed that the pitting was caused by a chemical used in the manufacturing process called MetalMedic, which was supplied by Third-Party Defendant Janed. However, Citizen’s, National’s insurer, questioned the conclusion of National’s investigation.
National submitted a property claim to Citizens under the insurance policy. The policy issued to National was an all risk policy. The policy contained anti-concurrent causation language (“loss or damage is excluded regardless of any other cause or event that contributes concurrently”), as well as an anti-sequential loss clause (“loss or damages is excluded regardless of any other cause or event that contributes ... in any sequence to the loss”). The policy also contained a number of other potentially relevant exclusions, including exclusions for other corrosion, marring or scratching, faulty, inadequate, or defective workmanship, and damage to any product caused by or resulting from error or omission by any person or entity, including outsourced products, that occurs in any stage of development or production. The policy also contained a Broadening Endorsement which provides coverage under the policy for damage caused directly by sudden and accidental marring and scratching of stock.
In evaluating the relevant exclusions, the court first concluded that the corrosion exclusion did not apply. The corrosion was the loss suffered; it was not the cause of the loss. Accordingly it did not apply. Turning to the exclusions for damage to products and faulty workmanship, the court concluded that the exclusion applied because Janed’s error in supplying faulty MetalMedic caused the loss. However, the court concluded that an exception to these exclusions requiring Citizens to pay for the loss or damage caused by a Covered Cause of Loss when an error or omission and faulty workmanship causes a Covered Cause of Loss applied. Citizens’ motion for summary judgment based on National’s claims for business income loss and extra expense were also denied.
Turning to the bad faith claim, the court granted summary judgment in favor of Citizens. National’s claim of bad faith was based on two events. The first was an internal email by a Citizen’s adjuster that concluded National’s damage met the definition for marring under the policy’s coverage broadening endorsement. The letter, however, was sent before the adjuster had all of the facts surrounding the claim and also referred to other applicable policy exclusions. Thus, the court concluded that the email did not reflect that Citizens believed that National had coverage when it denied the claim.
Second, Citizen’s denial letter wrongly cited the anti-sequential and anti-consequential modifiers to the applicable exclusions. This was clearly an error, as Citizens admitted. However, the court concluded this error did not constitute bad faith because: (1) Citizens never pressed forward with either limitation; and (2) the limitations did not change Citizens’ decision to deny coverage.
Thus, Citizens’ reasons for denying coverage were fairly debatable and the bad faith claim was dismissed.
PHILLIPS’ FEDERAL PHILOSOPHIES
Jennifer J. Phillips
01/04/17 Scottsdale Insurance Co. v. United Indus. & Const. Corp.
United States District Court, Eastern District of New York
Do-over Don’t
This coverage dispute was previously before the district court in September 2015. At that time, Scottsdale Insurance sought a declaration that it was not required to defend its insured United Industries in two underlying lawsuits, each of which alleged that United’s negligent performance of excavation, demolition, and construction work damaged the plaintiffs’ premises. Following the parties’ cross-motions for summary judgment, the district court held that Scottsdale had a duty to defend United, but denied both motions on the issue of indemnification as premature.
In the current decision, the district court considered Scottsdale’s motion for reconsideration of certain portions of this prior ruling. Initially, Scottsdale argued the court erred in finding a duty to defend because the underlying allegations fell within the scope of an Earth and Land Movement Exclusion , which as set out in the prior decision precluded coverage for property damage or other damages “caused directly or indirectly or in whole or in part, by the movement, in any direction of earth or land, regardless of,” among other things, “[t]he cause or source of such earth or land movement” or the order in which the movement occurred in association “with any other natural or man-made forces, causes, events or operations.” Because the underlying complaints alleged damage resulting from both excavation as well as demolition and/or construction, the court distinguished this case “from those [cited by Scottsdale] in which all of the alleged damage in the underlying complaint could only have been attributed, in whole or in part, to earth or land movement.” Because it was possible for United to be found liable in the underlying actions for damage “caused by non-earth-and-land-movement-acts” which would be covered by the policy, the district court denied Scottsdale’s motion for reconsideration on this point.
Scottsdale next challenged the district court’s holding that Scottsdale was equitably estopped from denying coverage based on its disclaimer of coverage after undertaking United’s defense because prejudice to United “could be presumed because of United’s loss of its right to control its own defense.” The court acknowledged Scottsdale’s referenced case law “stating that ‘[p]rejudice is established only where the insurer’s control of the defense is such that the character and strategy of the lawsuit can no longer be altered.” The court found this to be true where an insurer did not have knowledge of its defense at the time it agreed to defend, “however, it is irrelevant here where Scottsdale, with full knowledge of the facts constituting a defense to coverage, undertook coverage of United without reserving its right to disclaim coverage.” Because Scottsdale had knowledge, the presumption was proper.
Finally, the court denied Scottsdale’s motion for reconsideration of its dismissal of certain causes of action associated with the indemnification claims. In addition to finding that Scottsdale failed to provide any legal or factual argument in support of its request, the district court noted that dismissal of an indemnification claim as premature was appropriate where, as here, the dismissal was without prejudice.
ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA
Howard B. Altman
Annuity Sales Regulations
The New York State Department of Financial Services (DFS) recently advisory guidance to ensure compliance with requirements concerning annuity sales and replacements. The DFS’s December 8, 2016 Circular letter (Insurance Circular No. 7 (2016)) can be found at: http://www.dfs.ny.gov/insurance/circltr/2016/cl2016_07.htm . We summarize DFS’s recommendations below.
The new guidance is aimed at curbing misrepresentations made in the sale and replacement of annuities, and implicates Insurance Law §§ 2123, 4223, and 4226; 11 NYCRR 51 (Insurance Regulation 60) and 11 NYCRR 224 (Insurance Regulation 187).
Insurance Law §§ 2123(a)(3) and 4226(a)(6) require that producers and insurers conform to standards in connection with the replacement of an individual life insurance policy or individual annuity contract. The applicable regulations are 11 NYCRR 224 (Insurance Regulation 187), which requires a producer or insurer to perform a suitability review to determine the appropriateness of the sale or replacement of any annuity contract, and 11 NYCRR 51 (Insurance Regulation 60), which requires specific disclosures when a consumer is advised to lapse, surrender, replace or make any other change to an existing life insurance policy or annuity contract in conjunction with the purchase of a new life insurance policy or annuity contract.
A. Insurance Regulation 187, 11 NYCRR 224 - Suitability in Annuity Transactions
In recommending the purchase or replacement of an annuity contract, 11 NYCRR 224.4(a) requires a producer or the insurer (where a producer is not involved) to have reasonable grounds for believing that the recommended annuity contract is suitable for the consumer on the basis of the facts disclosed by the consumer as to the consumer’s investments, other insurance policies or contracts, and other “suitability information.” This “suitability information” includes the consumer’s age, annual income, financial situation and needs (including the financial resources used for the funding of the annuity), financial experience, financial objectives, intended use of the annuity, financial time horizon, existing assets, including investment and life insurance holdings, liquidity needs, liquid net worth, risk tolerance, and tax status. 11 NYCRR 224.3(e).
A producer or insurer (where a producer is not involved) may only recommend the purchase or replacement of an annuity contract where there is a reasonable basis to believe that the following four standards are satisfied:
- the consumer has been reasonably informed of various features of the annuity contract,;
- the consumer would benefit from certain features of the annuity contract, such as tax-deferred growth, annuitization or death or living benefit;
- the particular annuity contract as a whole, is suitable for the particular consumer based on the consumer's suitability information (as defined in 11 NYCRR 224.3(e)); and
- in the case of a replacement of an annuity contract, the replacement is suitable including taking into consideration whether the consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits (such as death, living or other contractual benefits), or be subject to tax implications if the consumer surrenders or borrows from the annuity contract,
11 NYCRR 224.4(a) further provides that an insurer may not issue an annuity contract recommended to a consumer unless there is a reasonable basis to believe the annuity contract is suitable based on the consumer’s suitability information, and 11 NYCRR 224.4(g) requires an insurer to ensure that every producer recommending the insurer’s annuity contracts is adequately trained to make the recommendation.
To ensure compliance with these rules, DFS recommends that producers and insurers must contemporaneously document: (1) any recommendation subject to 11 NYCRR 224.4(a); (2) the consumer’s refusal to provide suitability information, if any; and (3) that an annuity purchase or replacement is not recommended if a consumer decides to enter into an annuity purchase or replacement that is not based on the producer’s or insurer’s recommendation. 11 NYCRR 224.4(e). Pursuant to 11 NYCRR 224.6, this documentation must be maintained by producers and insurers in accordance with the record retention requirements under 11 NYCRR 243.
Finally, 11 NYCRR 224.4(f) requires an insurer to establish and maintain a supervision system that is reasonably designed to achieve the producer’s and insurer’s compliance with these rules, including a system to ensure that a producer or insurer properly documents any recommendations made under the regulation. An insurer may contract with a third party to establish and maintain this system of supervision for producers pursuant to 11 NYCRR 224.4(f), but the insurer remains responsible for compliance with the regulation.
B. Insurance Regulation 60, 11 NYCRR 51 – Replacement of Life Insurance Policies and Annuity Contracts
In addition to satisfying the suitability requirements of 11 NYCRR 224, producers and insurers must also comply with Insurance Regulation 60 in connection with any internal or external replacement of a life insurance policy or annuity contract. The purpose of Insurance Regulation 60 is to “protect the interest of the public by establishing minimum standards of conduct to be observed in the replacement or proposed replacement of life insurance policies and annuity contracts….” 11 NYCRR 51.1(b).
Insurance Regulation 60 first requires producers to determine whether the issuance of an annuity contract constitutes a replacement of an existing annuity. In making this determination, producers are required to use the Definition of Replacement form prescribed in Appendix 11 to Insurance Regulation 60. This form must be completed and signed by the consumer. 11 NYCRR 51.1(b).
If the replacement of an existing annuity contract has occurred or is likely to occur, Insurance Regulation 60 requires that a producer explain the primary reason or reasons for recommending the new annuity contract, why the existing annuity contract cannot meet the applicant’s objectives, and the advantages of continuing the existing annuity contract without changes. 11 NYCRR 51.5(c)(7). These explanations must be provided to the consumer in a written “Disclosure Statement” on the form prescribed in Appendix 10B to Insurance Regulation 60 or other substantially equivalent form deemed acceptable by the Superintendent. 11 NYCRR 51.5(c)(7).
Insurance Regulation 60 also imposes requirements on insurers. In connection with the issuance of a replacement life insurance policy or an annuity, the insurer issuing the policy or annuity must (among other requirements):
(3) prior to the delivery of the life insurance policy or annuity contract, require an accurate and complete “Disclosure Statement” signed by the insurance agent or broker … including the primary reason or reasons for recommending the new life insurance policy or annuity contract and why the existing life insurance policy or annuity contract cannot meet the applicant's objectives;
(4) examine the sales material, including any proposal, used in the sale of the life insurance policy or annuity contract, and the “Disclosure Statement” and ascertain that they are accurate and meet the requirements of the Insurance Law and regulations promulgated thereunder;
(5) deliver the completed “Disclosure Statement” to the policy or contract holder no later than the time of delivery of the policy or contract. The insurer may, at its discretion, require the “Disclosure Statement” to be signed by the applicant, a copy of which shall be provided to the applicant at the time the applicant signs the “Disclosure Statement.”
11 NYCRR 51.6(b).
With respect to insurers that issued an annuity contract that is to be replaced, Insurance Regulation 60 requires that the insurer provide the information necessary to complete the Disclosure Statement within 20 days of receiving a request for the information from the insurer issuing the new annuity contract. 11 NYCRR 51.6(c)(2).
The DFS found that “many producers and insurers are routinely proposing to consumers replacements of existing deferred annuities with immediate income annuities without also providing the amount of guaranteed income available under the existing annuity contract. Given the significantly more favorable minimum interest rates and annuity mortality rates on many previously issued contracts, consumers are receiving thousands of dollars less in lifetime retirement income by replacing such contracts.” Thus, the aim of the new guidance is to ensure that consumers are apprised of their options.
When determining whether the replacement of annuity contract is suitable, 224.4(a)(4) and 224.4(b) of Insurance Regulation 187 require a producer or an insurer (where no producer is involved) to consider whether a consumer will lose existing benefits, such as death, living, or other contractual benefits, and the producer or insurer must have a reasonable basis to believe that the annuity contract is suitable based upon the consumer’s suitability information.
As a result, a producer or insurer should not replace an existing deferred annuity contract with an immediate annuity or deferred income annuity unless the producer or insurer considers the following comparisons: (1) the income options available under the existing deferred annuity contract and the proposed income annuity contract; and (2) the monthly (or other frequency) income available under the selected income option for both the existing deferred annuity contract and the proposed income annuity contract. In instances where the exact income option selected by the consumer is not available under the existing deferred annuity contract, or where there are additional income or withdrawal options that have been purchased (i.e., for variable annuities), the producer or insurer should make a good faith effort to highlight the closest available income options.
When a producer or insurer (where a producer is not involved) proposes a replacement of an existing annuity contract with a new annuity contract, the producer or insurer should explain to the consumer in the disclosure materials, and specifically in the Agent’s or Broker’s Statement or Remarks sections of the Disclosure Statement: (1) why the proposed immediate annuity contract is more suitable for the consumer than the existing annuity contract; and (2) why the existing annuity contract offers advantages over the proposed annuity contract. In providing an explanation of the advantages of replacing the existing annuity contract, the producer should document and illustrate the way or ways in which the new or replacement contract is superior to the option of annuitization or other income payout options that may exist under the current annuity contract. This documentation should include the same comparison that is used to assess the suitability of the replacement: (1) the income options available under the existing deferred annuity contract and the proposed income annuity contract; and (2) the monthly (or other frequency) income available under the selected income option for both the existing deferred annuity contract and the proposed income annuity contract.
An insurer should not deliver an annuity contract as a result of a replacement unless the appropriate income comparison information has been provided and the insurer has ascertained that it is accurate in accordance with 11 NYCRR 51.6(b) of Insurance Regulation 60. An insurer that issued the contract that is being replaced that refuses or otherwise fails to provide the information would be undermining Regulation 60’s intended purpose, the protection of policyholders and contract holders, and violating 11 NYCRR 51.7(b) of Insurance Regulation 60. In those instances where the insurer replacing the annuity contract requests and does not receive the information to provide the consumer with the necessary income comparisons, that insurer should document the request and process the replacement, if otherwise suitable, and report the replaced insurer’s refusal to provide the income comparison information to DFS.
A. Betterment of Rate Calculations
To comply with Insurance Law § 4223(a)(1)(E), DFS recommends that insurers which deliver or issue for delivery annuity contracts in New York, establish a procedure to ensure that consumers receive the highest amount of income available when requesting annuitization of an in-force deferred annuity contract. Insurers should perform a comparison of the: (1) income benefit derived from the guaranteed annuitization factors included in the existing annuity contract; and (2) income benefit derived from the insurer’s annuitization factors available for new sales. The insurer should use the factors that provide the consumer with the larger income benefit.
Earl K. Cantwell
[email protected]03/30/16 D. Cummins Corp. v. United States Fidelity and Guaranty Co.
California First District Court of Appeal
Don’t Forget About Standing to Sue
In this case, an insured and its parent company sued liability insurers seeking a declaratory judgment with respect to coverage and duties of the insurance companies concerning numerous asbestos lawsuits against the insured. The Trial Court granted a motion to dismiss which was upheld on appeal, on the essential grounds that the parent company lacked standing to sue to seek a declaratory judgment against the liability insurers.
The Appellate Court first noted that in declaratory judgment actions, generally, a party must have standing to sue, there must be an actual case or controversy in existence between the parties, and the matter must be ripe in terms of timing for a determination. The Trial Court was entitled to review the factual allegations to determine whether there was in fact an actual controversy between the parties, and if so, what parties. Also, to some extent, a decision by a Trial Court whether or not to issue a declaratory judgment may be discretionary if the court feels it is not necessary or proper, and this may be subject to limited review only for abuse of discretion.
The parent company argued that it was an interested person under the policies and in the coverage because it was the sole entity responsible for managing the affairs of the insured, including making decisions with respect to litigation strategy, resolution, and settlement of various claims. However, the Appellate Court found this argument not persuasive, and viewed this interest at most as an indirect interest. The insured subsidiary corporation itself had the direct interest in coverage and the interpretation of the policies in question.
The Appellate Court noted that, in many other contexts, ignoring a corporation’s separate existence is infrequently done, and here the named insured company was a separate corporate entity which could pursue its own rights and interests.
Therefore, the Trial Court decision was affirmed, although the case would continue with the named insured corporation involved as the direct party in interest with standing to seek and argue for the declaration of coverage and insurance rights.
The lesson of this case is to pay close attention to the actual parties to the policy, and whether there is identity with the parties to the litigation. A named insured to the policy may for some reason be omitted from the litigation and have to made a necessary party to any declaratory relief. This may certainly occur if there are a number of different policies extending back over several years where a corporation may have undergone several internal corporate reorganizations and name changes.
Generally, a named insured or additional insured will have standing to file a declaratory judgment action, and in certain circumstances and under state statutes third party claimants may also have standing to initiate or participate in such a declaratory judgment action seeking to determine the nature, presence, and amount of coverage.
